What is Emma portfolio beta and required return

Reference no: EM132202158

Questions -

Q1 - Andre is an amateur investor who holds a small portfolio consisting of only four stocks. The stock holdings in his portfolio are shown in the following table:

Stock	Percentage of Portfolio	Expected Return	Standard Deviation
Artemis Inc.	20%	6.00%	33.00%
Babish & Co.	30%	14.00%	37.00%
Cornell Industry	35%	13.00%	40.00%
Danforth Motors	15%	3.00%	42.00%

What is the expected return on Andre's stock portfolio?

7.80%

10.40%

14.04%

15.60%

Suppose each stock in Andre's portfolio has a correlation coefficient of 0.40 (ρ = 0.40) with each of the other stocks. The market's average standard deviation is approximately 20%, and the weighted average of the risk of the individual securities in the partially diversified four-stock portfolio is 38%.

If 40 additional, randomly selected stocks with a correlation coefficient of 0.30 with the other stocks in the portfolio were added to the portfolio, what effect would this have on the portfolio's standard deviation (σ_P)?

It would gradually settle at about 35%.

It would gradually settle at approximately 20%.

It would stay constant at 38%.

It would gradually settle at approximately 50%.

Q2 - Emma holds a $10,000 portfolio that consists of four stocks. Her investment in each stock, as well as each stock's beta, is listed in the following table:

Stock	Investment	Beta	Standard Deviation
Omni Consumer Products Co. (OCP)	$3,500	0.80	9.00%
Zaxatti Enterprises (ZE)	$2,000	1.50	11.00%
Water and Power Co. (WPC)	$1,500	1.10	16.00%
Flitcom Corp. (FC)	$3,000	0.30	22.50%

Suppose all stocks in Emma's portfolio were equally weighted. Which of these stocks would contribute the least market risk to the portfolio?

Flitcom Corp.

Water and Power Co.

Omni Consumer Products Co.

Zaxatti Enterprises

Suppose all stocks in the portfolio were equally weighted. Which of these stocks would have the least amount of standalone risk?

Zaxatti Enterprises

Water and Power Co.

Flitcom Corp.

Omni Consumer Products Co.

If the risk-free rate is 7% and the market risk premium is 9%, what is Emma's portfolio's beta and required return? Fill in the following table:

	Beta	Required Return
Emma's portfolio

Reference no: EM132202158

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